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10/07/2009

Apple As A Monopoly..?

As I was reading through chapter 8 of the textbook, the idea of a current Monopoly really struck me. Apple. The idea of a monopoly is that they have market power. Or more generally, they have they power to block entry for other companies trying to enter the market. Monopoly set prices in the market by by setting the price, and letting the market determine how much to by. Or they decide how much to sell and let the market determine the price at which they will buy the quanity. In an article I read, Apple has been compared to Microsoft as being a Monoploy, holding the seller pricing power, and putting up barriers for others to enter the market. The basic idea is that Apple (i-tunes) basically holds all the market power in that industry. The article is unbasis because it also states a different point of view; i-tunes as a monolopy killer. It was interesting for me to look at both sides of Apple and think about what it means to be a Monopoly, and if in fact Apple (i-tunes) is one.The article states, "A monopoly does not refer to the popularity of a product, but rather the control of a market."The article is mainly about Apple, but it also refers a lot to Microsoft, and what happens to the market when a Monoploy goes bad. It takes apart the myth of Apple being a Monoploy or a failure. Here is the URL for the article if anyone wants to check it out. http://http://www.roughlydrafted.com/RD/Home/E36929A1-EA70-493B-B823-DCCEA85DAF54.html

3 comments:

In economics, we are going away from the use of monopoly - which is more of a textbook idea that we don't see much in the real world - to the use of market power. This refers to the ability to set prices above marginal cost. Clearly Apple does have significant market power - people pay a premium for Macs even though most users don't take advantage of the areas where a Mac is superior. Also, Apple has successfully marketed iTunes at a premium price, even though it is definitely not a high quality offering.

Dr. Tufte hit the nail right on the head. Apple has found its niche where it can exercise its market power (total domination) over other products, like the Microsoft Zune, and that's why it is able to charge a premium for its products.

The iPod and iPhone, for example, are two products that are incredibly easy to use, that appeal to everybody, and that give people a certain image and status. Through their successful widespread marketing of these products, Apple has been able to capture a large share of the cell phone market, and an even larger share of the mp3 player market. With all of these captive customers, Apple is able to charge a lot more than some people think they are worth. Demand for Apple products seems to be somewhat inelastic, compared to goods that are substitutes for Apple products.